Central Planning

Definition

Central planning is an economic system where the government makes all decisions regarding the production and distribution of goods and services, rather than relying on market forces. This approach was a hallmark of the Soviet Union's economy, significantly impacting its development and policies over the decades.

5 Must Know Facts For Your Next Test

1. Central planning was first implemented in the Soviet Union after the 1917 revolution as a way to control the economy and achieve socialist goals.
2. The New Economic Policy (NEP) marked a temporary retreat from strict central planning by allowing some market-oriented reforms to stimulate economic recovery in the early 1920s.
3. The introduction of Five-Year Plans in 1928 signified a return to strict central planning aimed at rapid industrialization and agricultural collectivization.
4. Khrushchev's attempts at reform during his leadership included some decentralized elements within the context of central planning, which ultimately did not succeed.
5. The failure of central planning led to economic stagnation in the 1970s and 1980s, contributing to a decline in living standards and increased public discontent.

Review Questions

• How did central planning influence the economic strategies during the establishment of the Soviet Union?
  • Central planning played a crucial role in shaping the economic strategies during the establishment of the Soviet Union by emphasizing state control over all aspects of production and distribution. After the 1917 revolution, leaders sought to implement a system that eliminated capitalist market forces. The introduction of policies like War Communism prioritized state control but faced significant challenges, leading to the temporary adoption of the NEP to revive the economy while still maintaining an overarching commitment to central planning principles.
• Evaluate the effectiveness of central planning in achieving rapid industrialization through the Five-Year Plans.
  • The Five-Year Plans exemplified an aggressive approach to central planning, aiming for rapid industrialization and significant increases in production. While some initial successes were evident, such as increased output in heavy industries like steel and coal, these plans often led to inefficiencies due to unrealistic targets and a lack of flexibility. The focus on quantity over quality resulted in substantial waste and ultimately highlighted significant flaws within the centrally planned economy that hindered sustainable growth.
• Assess how central planning contributed to economic stagnation and declining living standards in later years of the Soviet Union.
  • Central planning contributed significantly to economic stagnation and declining living standards in the later years of the Soviet Union due to its rigid structures that stifled innovation and adaptability. By continuing to prioritize state-directed goals over market responsiveness, the economy became increasingly inefficient. As consumer needs went unmet and quality of goods deteriorated, public dissatisfaction grew. This stagnation was a critical factor leading to systemic issues that would eventually contribute to the collapse of the Soviet economy in 1991.

Related terms

Command Economy: An economic system in which the government makes all economic decisions, often associated with central planning, dictating what to produce, how to produce it, and who gets the products.

Planned Economy: A type of economy where production, investment, prices, and incomes are determined centrally by a government or planning authority.

Decentralization: The process of redistributing or dispersing functions, powers, people, or decision-making away from a central authority, often contrasting with central planning.